Britain’s top bosses have seen their pay packets slashed in the face of mounting pressure from politicians and from investors.
The average FTSE 100 chief executive earned £4.5m in 2016, down from £5.4m in 2015, according to the High Pay Centre and the Chartered Institute for Personnel and Development, reports The Telegraph.
It takes earnings for the business leaders down to the lowest level since 2012.
Shareholders have been putting more pressure on company boards to restrain pay, speaking with directors behind closed doors and in some instances publicly disagreeing with boards on pay policies.
“There is a lot more light being shone on this world than there has been in the past – remuneration committees have finally grasped a few nettles, some asset managers are on the front foot a bit more, possibly even headhunters and pay consultants are getting slight more ‘real’,” said the High Pay Centre’s director Stefan Stern.
It is not just the private sector: “The political pressure has really changed,” he said.
CIPD boss Peter Cheese agreed that Theresa May’s campaign to keep executive earnings down has also had an effect.
“It’s crucial that the Government keeps high pay and corporate governance reform high on its agenda. We also need business, shareholders and remuneration committees to do their part and challenge excessive pay, to understand pay and reward for top executives in the context of the whole organisation, and look at how pay is linked to driving sustainable performance,” he said.
“We need a significant re-think on how and why we reward CEOs, taking into account a much more balanced scorecard of success beyond financial outcomes, looking more widely at the impacts of businesses on all stakeholders from employees to society more broadly.”
He said the current review of the Corporate Governance Code is a good chance to put more emphasis on executive pay.
The Investment Association said shareholders are increasingly vocal on the topic of high pay.
“The IA’s Public Register of shareholder votes, launched last month, shows that pay-related issues topped the list of shareholder concerns,” said Andrew Ninian, the IA’s director for stewardship and corporate governance.
“Almost four out of 10 resolutions appearing on the Public Register were for shareholders voting against companies’ annual remuneration reports, remuneration policy and incentive plans. We hope that more of these companies that feature on the register will respond by publishing a statement on how they are addressing their shareholders’ concerns ahead of the next AGM season.”
Chief executives are still paid substantially more than the average Briton, but the gap is shrinking.
The median worker last year earned £28,758.
Using the median, a different measure of the average, the typical CEO received £3.45m in 2016, which was 120 times the average income.
That ratio is down from 141:1 in 2015 and 137:1 in 2014.
As a result the average CEO has by today earned as much as the average worker will in the whole of 2018 – an event dubbed “fat cat Thursday” by the groups that carried out the analysis.
Mr Stern said more pay rises for workers lower down the corporate hierarchy would help to reduce the ratio after several years of limited pay growth.
He said it can be difficult to work out why chief executives receive such substantial bonuses.
“Performance-related pay only really works in relatively simple jobs with repetitive tasks, like a sales job with a commission. A CEO’s job is so enormously varied and the responsibility is spread so widely, how do you really have sensible key performance indicators that show that single individual has made a significant contribution separate from the rest of the board and the senior management team?” he said.
“I would actually say that base pay in some cases should probably be higher but there should be much less [variable pay].”
The most highly paid chief executive in 2016 was Sir Martin Sorrell at advertising giant WPP with £48.1m, followed by Carnival’s Arnold Donald on £22.4m and Reckitt Benckiser’s Rakesh Kapoor with £14.6m.
The Adam Smith Institute said that chief executives are enormously valuable to companies and so their pay should not be a cause for concern.
“The long-term trend suggests that CEOs are more valuable to firms now than ever before. Unexpected CEO departures are leading to ever bigger share price movements,”said the think-tank’s head of research, Sam Dumitriu.
“If shareholders, and that includes anyone with a private pension, want a return on their investments then hiring the right chief executive is essential.”